Hui and Png (2003)

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Advertising Architectural Publishing of books, periodicals and other publishing Programming and broadcasting Computer programming Computer consultancy Creative, arts and entertainment Cultural education

Film and motion pictures Sound recording and music publishing Photographic activities PR and communication Software publishing (including video games) Specialised design Television programmes Translation and interpretation

1. Relationship between protection (subject matter/term/scope) and supply/economic development/growth/welfare 2. Relationship between creative process and protection - what motivates creators (e.g. attribution; control; remuneration; time allocation)? 3. Harmony of interest assumption between authors and publishers (creators and producers/investors) 4. Effects of protection on industry structure (e.g. oligopolies; competition; economics of superstars; business models; technology adoption) 5. Understanding consumption/use (e.g. determinants of unlawful behaviour; user-generated content; social media)

A. Nature and Scope of exclusive rights (hyperlinking/browsing; reproduction right) B. Exceptions (distinguish innovation and public policy purposes; open-ended/closed list; commercial/non-commercial distinction) C. Mass digitisation/orphan works (non-use; extended collective licensing) D. Licensing and Business models (collecting societies; meta data; exchanges/hubs; windowing; crossborder availability) E. Fair remuneration (levies; copyright contracts) F. Enforcement (quantifying infringement; criminal sanctions; intermediary liability; graduated response; litigation and court data; commercial/non-commercial distinction; education and awareness)

Source Details

Hui and Png (2003)
Title: Piracy and the Legitimate Demand for Recorded Music
Author(s): Hui, K. L., Png, I. P.
Year: 2003
Citation: Hui, K. L., & Png, I. (2003). Piracy and the legitimate demand for recorded music. Contributions in Economic Analysis & Policy, 2(1).
Link(s): Definitive , Open Access
Key Related Studies:
Discipline:
Linked by: Fukugawa (2011), Giletti (2012), Grolleau, Mzoughi and Sutan (2008), Liebowitz and Watt (2006), Zentner (2005)
About the Data
Data Description: Data sources:
  • The authors collected data from multiple sources. Data on music CD sales revenue and volume, CD player ownership, national population, and personal disposable income for 1994-98 were acquired from Global Market Information Database (GMID), which is a comprehensive statistical archive compiled by Euromonitor.
  • They compared the GMID with International Federation of the Phonographic Industry (IFPI) music CD data for 1998, the only year for which the IFPI published comprehensive sales and volume information. The two data sets were closely correlated: the correlation coefficients were 0.993 (p < 0.01) for CD sales volume and 0.996 (p < 0.01) for CD sales revenue.
  • They obtained data on Purchasing Power Parity and exchange rates from the Economist Intelligence Unit (EIU) Country Data.
  • They obtained data on national piracy using the IFPI’s music CD piracy rates.
  • Data on music cassette piracy rates and business computer software piracy rates were obtained from the IFPI and Business Software Alliance (BSA)/Software and Information Industry Association (SIIA) respectively.
  • They acquired the consumer expenditure and unemployment data from the GMID.
  • They also compiled the worldwide number of MTV subscribers from various issues of the annual report of VIACOM, the parent company of MTV Networks, and converted the subscriber base into per-capita terms by using the world population, obtained from the U.S. Census Bureau.
  • The data set for music CDs covered 28 countries over the period 1994-98, which constituted a total of 140 observations. The data set could not be extended beyond 1998 because in the following years, the GMID included its estimates of pirated quantities in its calculations of music CD sales volume and revenue. Therefore, accurate data are not available after 1998.
Data Type: Secondary data
Secondary Data Sources:
Data Collection Methods:
Data Analysis Methods:
Industry(ies):
Country(ies):
Cross Country Study?: Yes
Comparative Study?: No
Literature review?: No
Government or policy study?: No
Time Period(s) of Collection:
  • 1994-1998
Funder(s):
  • None stated

Abstract

Publishers of computer software and music claimed losses of nearly $16 billion to piracy in 1999. Theoretically, however, piracy may raise legitimate demand through positive demand-side externalities, sampling, and sharing. Accordingly, the actual impact of piracy on the legitimate demand is an empirical issue. Addressing this issue in the context of recorded music, we develop and test hypotheses from theoretical models of end-user and re-seller piracy on international panel data for music CDs. Empirically, we find that the demand for music CDs decreased with piracy, suggesting that "theft" outweighed the "positive" effects of piracy. However, the impact of piracy on CD sales was considerably smaller than industry estimates. Further, we estimated that, accounting for both demand losses and price adjustments, the industry lost no more than 6.6% of revenue to piracy.

Main Results of the Study

Main results:

  • In theory, piracy may raise the demand for a legitimate information product. If the positive influences were strong enough, they could outweigh the negative effect of piracy due to the theft of customers.
  • Our results for music CDs suggest otherwise. The coefficient of the piracy variable was negative and significant. Even if such positive effects did exist, they were more than offset by the harm caused by the loss in sales due to “theft”.
  • The data set further allowed the authors to investigate in detail the presence of an indirect network effect, by which higher piracy increases the ownership of CD players, which in turn stimulates the demand for legitimate music CDs.
  • The results showed that the demand for legitimate music CDs was indeed positively associated with higher CD player ownership. However, the correlation between the pirated quantity and CD player ownership was quite modest, and not statistically significant. Pirated music did not have a significant complementary effect on the demand for CD players, and hence it might not have contributed to the raising legitimate demand through an indirect network effect.
  • The authors estimated that piracy caused legitimate sales to fall by 0.0954 unit per capita. Assuming that prices remained constant, the average revenue lost to piracy would have been 6.6%. This estimate exaggerates the actual revenue loss because it assumes constant prices. It is lower than the revenue loss that we calculated that a monopoly would have suffered.

Policy Implications as Stated By Author

Policy implications:

  • The results suggest that piracy would affect legitimate producers both directly by drawing away demand and indirectly by inducing them to reduce prices: evidence which could have an effect on policy-making in this area.

Coverage of Study

Coverage of Fundamental Issues
Issue Included within Study
Relationship between protection (subject matter/term/scope) and supply/economic development/growth/welfare
Green-tick.png
Relationship between creative process and protection - what motivates creators (e.g. attribution; control; remuneration; time allocation)?
Harmony of interest assumption between authors and publishers (creators and producers/investors)
Effects of protection on industry structure (e.g. oligopolies; competition; economics of superstars; business models; technology adoption)
Understanding consumption/use (e.g. determinants of unlawful behaviour; user-generated content; social media)
Green-tick.png
Coverage of Evidence Based Policies
Issue Included within Study
Nature and Scope of exclusive rights (hyperlinking/browsing; reproduction right)
Exceptions (distinguish innovation and public policy purposes; open-ended/closed list; commercial/non-commercial distinction)
Mass digitisation/orphan works (non-use; extended collective licensing)
Licensing and Business models (collecting societies; meta data; exchanges/hubs; windowing; crossborder availability)
Green-tick.png
Fair remuneration (levies; copyright contracts)
Enforcement (quantifying infringement; criminal sanctions; intermediary liability; graduated response; litigation and court data; commercial/non-commercial distinction; education and awareness)
Green-tick.png

Datasets

Sample size: 28
Level of aggregation: Country
Period of material under study: 1998